At a Difficult Time, CUs Should Give Thanks

The credit union industry is going through difficult times right now. True, not as bad as the rest of the financial services sector, but rough enough. Oddly enough-or perhaps appropriately enough-this is a time for giving thanks.Credit unions have their management and boards to thank for keeping themselves fairly unscathed, at least directly, in the subprime mortgage debacle. Credit unions stayed above the fray and are now posting solid numbers in this arena.According to CUNA figures, in September, credit unions’ overall loans outstanding increased 0.8%, and 6.2% over the first nine months of 2008. This was up from 4.9% growth posted during the same period last year.Of all things right now, mortgage products led credit union loan growth last month. Home equity loans were up 2.5%, adjustable-rate mortgages grew 2.2%, and fixed first mortgages were increased 1.1%, CUNA said. Mortgage lending accounted for 53.5% of credit union loan portfolios as of September, up from 50.8% at the same time last year.According to data from NAFCU as of June 30, credit unions had a delinquency ratio of 0.78% for all real estate loans, while the bank and thrift delinquency ratio in this category was 2.70%; the variance was even greater on first mortgages, with credit unions posting delinquencies at 0.78% and FDIC-insured institutions at 3.11%.Though credit unions’ delinquency ratio has been creeping upward, overall, it’s still just 1.1%. According to the FDIC, its insured financial institutions are seeing a delinquency rate over 2.0% for the first time since 1993.Credit unions should also be thankful that the auto makers are relying more on employee pricing and less on zero-percent financing to boost sales, expanding credit unions’ window of opportunity to compete in this lousy market.On the other side of the balance sheet, savings growth this year is also exceeding last year, CUNA said. As of September 2007, savings at credit unions grew 4.27% that year versus 5.06% as of this September.Credit unions’ net worth ratio, which comprises all their capital, has held steady around 11.0% since February when it dipped down from 11.4%.Credit unions are also fortunate to have an experienced, albeit new, regulator heading up the agency right now. NCUA Chairman Michael Fryzel, with industry input, announced the agency’s innovative Credit Union Homeowners Affordability Relief Program proposal. CU HARP, if approved by Treasury and the Fed, will use the Central Liquidity Facility to provide credit unions with liquidity to help temporarily lower members’ monthly mortgage payments.The program is not only creative, but also compassionate in keeping with the credit union spirit. And, ultimately, credit unions will be better served by having the ability to rework members’ mortgages rather than foreclosing or the member filing for bankruptcy.Two key demonstrations have come out of this proposal as well: the fact the agency was willing to use the CLF in such a manner and that Chairman Fryzel was accepting of stakeholder input. Credit unions should be thankful for the agency’s proactive attitude and hopeful the proposal is approved.In addition to the CU HARP, the agency requested that CUs at least have access to Troubled Assets Relief Program funds, even if they don’t decide to use it. This is entirely appropriate for parity’s sake. When Treasury turned a blind eye to the smaller institutions-and consumers-in favor of saving the larger banks by purchasing preferred stocks, Chairman Fryzel wrote Congress seeking money for a TARP-like program for credit unions.In a way, Treasury Secretary Paulson is giving credit unions a back-handed compliment within the context of his recent congressional testimony. Essentially he’s saying the credit unions and other smaller institutions don’t need the money (though some could certainly use it) because they weren’t involved in the same risky business other competitors were.Yes, this thin silver lining is something to be grateful for. It can only help when credit unions go to Treasury or Congress for relief and reform, such as CU HARP, in the coming months.As many have been saying, credit unions should turn the challenges of other financial institutions into opportunities for themselves right now. Credit unions canbetter exceed their goals if they work together on achieving them. So, in closing, credit unions should give thanks for the cooperative spirit and duty to the common man that they were founded upon that make CUs larger than they are.–Comments? E-mail [email protected]